Iran War Drives Oil Prices Higher: Gas Prices Surge Globally

NEW YORK – Oil prices have surged to levels not seen in months, and gasoline prices are following suit, as the conflict between the U.S., Israel, and Iran intensifies and disrupts global energy supplies. The price of oil surpassed Friday, March 7th, settling at $90.90 a barrel for American crude, a 36% increase from a week prior. Brent crude, the international benchmark, climbed 27% over the same period to $92.69 a barrel.

The immediate catalyst is the disruption to shipping in the Persian Gulf. Approximately 20 million barrels of oil per day are being carried by ships currently unable to safely navigate the Strait of Hormuz, a critical chokepoint bordered by Iran. Damage to oil and gas facilities across the Middle East is exacerbating the supply concerns. Kuwait announced Saturday it would reduce oil production as a “precautionary” measure, a move likely to further tighten global energy markets.

The impact is already being felt at the pump. As of Saturday, a gallon of regular gasoline in the U.S. Averaged $3.41, up roughly 43 cents from the previous week, according to AAA. Diesel prices have risen even more sharply, reaching $4.51 a gallon, an increase of approximately 75 cents over the same timeframe. These increases are occurring at a time when many consumers are already facing economic pressures.

“It’s crazy. It’s not needed, especially at a time when people are already struggling, but not unexpected from all this turmoil that’s going on,” said Mark Doran, a driver in Middlebury, Vermont. His sentiment reflects a broader concern that the conflict could be protracted, with limited prospects for a swift resolution.

The situation is particularly acute for Europe and Asia, which are more reliant on Middle Eastern energy supplies. Diesel prices have doubled in Europe, while jet fuel prices in Asia have risen by nearly 200%, according to Claudio Galimberti, chief economist at Rystad Energy. This highlights the global reach of the supply shock and the potential for cascading economic effects.

Iran has launched a series of retaliatory attacks, including a drone strike on the U.S. Embassy in Saudi Arabia, and strikes on a major refinery in Saudi Arabia and a liquefied natural gas (LNG) facility in Qatar. These attacks have halted flows of refined products and taken approximately 20% of the world’s LNG supply offline. Roughly 9 million barrels of oil per day are currently off the market due to facility damage or precautionary production cuts.

While the U.S. Is a net exporter of oil, it is not insulated from global price fluctuations. Oil is traded on global markets, meaning that U.S.-produced crude is also benefiting from the higher prices driven by Middle Eastern instability. However, increasing domestic production is not a quick fix. Al Salazar, head of macro oil and gas research at Enverus, notes that there is typically a six-month lag between increased drilling activity and actual production increases.

the U.S. Refining infrastructure presents a challenge. Much of the crude oil produced in the U.S. Is light, sweet crude, while refineries on the East and West coasts are better equipped to process heavier, sour crude. This necessitates both crude oil exports and imports of refined products, making the U.S. Vulnerable to disruptions in the global refining network.

The Biden administration issued a plan Friday to insure losses up to approximately $20 billion in the Gulf region, aiming to restore confidence in maritime trade and stabilize international commerce. However, energy experts are skeptical that insurance alone will resolve the underlying security concerns. Amy Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University, emphasized the need for a “credible demonstration of solutions to the counter-terrorism problem,” citing concerns about drones, speedboats, and mines.

The long-term outlook remains uncertain. Salazar questioned what a “new normal” would look like even if the Strait of Hormuz were reopened, and what effective security measures would entail. “All it takes is one individual with a RPG to take out a tanker,” he said, highlighting the persistent vulnerability of maritime shipping in the region.

The current crisis underscores the fragility of the global energy system and the potential for geopolitical events to rapidly impact commodity prices and economic stability. Consumers and businesses alike are bracing for continued price increases and uncertainty as the conflict in the Middle East unfolds.